Cash Flow Dries Up During CA's Second Quarter

Second quarter fiscal 2007 cash flow fell 98 percent, tumbling to $6 million from $299 million during the same quarter a year ago, according to CA. A drop in the level of customer bookings and billings, lower cash collections and higher than anticipated accounts payable disbursements each contributed to the freefall in cash flow, said John Swainson, president and CEO.

CA's revenue and earnings marks were "at or above" the vendor's expectations, said Swainson. For the quarter, CA earned $53 million, or 9 cents per share, on revenue of $762 million. This compared to restated earnings of $46 million, or 8 cents per share, on revenue of $704 million for the same quarter a year ago, the vendor said.

"We believe we have addressed the issues that affected our performance in the second quarter, and we are confident in our ability to execute in the second half," said Swainson.

Still, the less than stellar cash flow for the second quarter will drag down CA's annual cash flow target, he said.

Commission payments and employee severance payments were a considerable part of CA's shortage in cash flow during it fiscal second quarter, said Nancy Cooper, executive vice president and CFO. The vendor said in August it would layoff about 1,700 employees in an effort to cut costs. On Thursday, Cooper said laying off only 1,400 employees, and having another 300 leave through attrition, should save CA about $200 million by the end of CA's fiscal year 2008.

CA's second quarter earnings announcement came only hours after its former chief executive, Sanjay Kumar, was sentenced in a Brooklyn Federal Courthouse to 12 years in prison for his admitted part in the vendor's $2.2 billion accounting scandal.

In the run-up to earnings announcement, CA partners digested official word that came only 24 hours earlier from CA that it had handed its channel chief reins to Bill Lipsin, senior vice president and general manager for CA's Western business.

The sentencing of Kumar closes a dark chapter in CA's history that at certain times actually hindered the ability of some partners to sell CA against rival products from other vendors, said Tom Lambro, vice president of business development at Denali Advanced Integration, a solution provider and CA partner in Redmond, Wash.

Since the accounting scandal was uncovered, and as Kumar awaited sentencing, sales people from CA's rivals would routinely point to CA's legal problems as a reason for customer not to do business with CA, said Lambro. "Competitors used those problems," said Lambro. "They'd say look at (CA), they are so screwed up."

That will now begin to change, said Lambro, who added that while CA is still "cleaning up Kumar's mess," the vendor has put itself in a strong position to compete with new products and strategies introduced under Swainson.

Lambro has worked with CA's new channel chief Bill Lipsin in the past, and was part of the CA advisory council that helped former CA channel chief Gary Quinn develop a strategy introduced in August to triple CA's indirect sales volume and double the number of CA solution provider partners.

Lipsin will make a few changes to the playbook introduced by Quinn, but those changes will be positive in nature, said Lambro. "I think (Lipsin) will make a few changes. I think he will put even more focus on the channel. I think he realizes the importance of that," said Lambro.

When CRN broke the news that Lipsin would be tapped as CA's channel chief, many long-time CA partners expressed outrage that George Kafkarkou was overlooked for the job. Kafkarkou ran CA's channel in 2003, covered as interim channel chief after Quinn resigned, and now heads back to his role as senior vice president of SMB and consumer markets.

Kafkarkou needs to have a hand in bringing Lipsin up to speed with CA's channel, said Leonard DiCostanzo, senior vice president of professional services at Turnkey Computer, a veteran CA solution provider in Staten Island, N.Y. "Use George and the existing team as the bridge (for Lipsin). Partners need program continuity to sustain business and confidence in CA," DiCostanzo said.